Rubicon - Step by Step Process for Applying, Quoting, Underwriting and Ultimate Placement of a Rep & Warranty Policy

Step by Step Process for Applying, Quoting, Underwriting and Ultimate Placement of a Rep & Warranty Policy

Step 1: There’s no insurance application. If needed, Rubicon will sign any NDA required by either party. We then required the following documents:

a. Draft copy of the Purchase/Sale Agreement (PSA)
b. Latest audited financials (preferable). If audited statements are not available, reports from third-party reviews (i.e. QofE reports) will suffice
c. Year to date financials (if available)
d. CIM or executive presentation (if available)
e. List of third-party diligence reports that will be available (i.e. legal, tax, financial, IT/IP, HR, insurance, environmental)

Step 2. The information is then taken to M&A Underwriters for review, and within a day or two, a non-binding indication letter (NBIL) is provided. The NBIL outlines the major terms of a prospective R&W policy, comprising the proposed limits, deductible, and premium, which of the reps and warranties are eligible for coverage, and which may need more information before a final decision is made.

Up to this point, there has been no cost incurred by the client.  To move forward, a non-refundable underwriting fee is charged ($40K to $50K depending on the size and complexity of the deal) to cover the insurer’s cost to retain outside M&A attorneys to review and formally underwrite the deal.

Step 3. If the client wishes to move forward with a formal proposal, the NBIL will provide instructions for payment directly to the insurer (not subject to S/L taxes or commission).

Step 4. Upon receipt of payment, the insurer’s counsel will access the buyer’s data room and review the due diligence reports performed by the buyer’s third-party experts. This review process routinely takes less than a week to complete.

Step 5. Following their review of the due diligence reports and accessing the data room, underwriters and their counsel will schedule a conference call with the buyer’s representatives (deal team members and counsel). The purpose of the call is to cover questions raised by the underwriters based on their review of the records in the data room. This will also be the time questions are addressed on any material changes needed for the proposed policy wording.

Step 6. Within 48 hours of the diligence call, the R&W policy is issued. This policy outlines all the reps and warranties to be covered, along with the final pricing, limit, and deductible terms specified by the buyer. Any outstanding items from the diligence call are listed and required for binding.

Step 7. The policy takes effect on the Closing Date of the deal, subject to receipt of the premium and acceptance of a signed and dated statement from the Insured warranting that, as of the transaction date, the designated members of the Buyer’s team are not aware of any facts, events, or circumstances that could give rise to a Claim under this R&W policy. Also required will be a copy of the executed agreement, disclosure schedules, outstanding subjectivities from the diligence call, and a digital copy of the VDR.

As with anything new, the first time anyone goes through the process, R&W gets easier and easier to set up. We can walk you through the entire process.

Patrick Q. Stroth, ARM
President Rubicon M&A Insurance Services, LLC
A member of the Liberty Company Insurance Broker Network
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